After being aggressively courted by two rich suitors, natural gas producer Progress Energy Resources Corp. finds itself empty-handed and in the eye of a market storm today as a result of Ottawa’s surprising decision late Friday to block its takeover by Malaysia’s state-owned oil company, Petronas.

Market players, who had widely expected approval with some tough conditions, are interpreting the deal’s rejection as an indication Ottawa is getting tough on foreign takeovers in Canada’s oil and gas sector.

There is widespread worry that other deals in the pipeline, particularly Nexen Inc.’s takeover by China’s CNOOC Ltd. and Celtic Exploration Ltd.’s takeover by Exxon Mobil Corp., are the next to get turned down.

ttawa isn’t explaining why the Progress takeover doesn’t meet Canada’s “net benefit” test, but it’s possible that it’s the market that is over-reacting. Here’s another scenario: the takeover is simply on hold while Petronas ties up some loose ends and Ottawa tries to figure out how to handle the controversial rush of takeovers by state-owned enterprises, particularly from Asia.

Prime Minister Stephen Harper, who is calling the shots on this file, has promised to produce a framework on foreign investment, particularly with respect to SOEs, around the same time Ottawa hands down a decision on the Nexen takeover in the next few weeks.

Sources say Ottawa asked Petronas at the eleventh-hour for a delay to rule on its bid to take over Progress until Dec. 7, so it can finalize its new policy. Industry Canada, which is reviewing the transaction, had already delayed its decision once and had promised to produce a ruling by Friday.

But Petronas couldn’t agree to a delay for reasons that have nothing to do with failing Canada’s net benefit test. Rather it had a lot to do with its joint-venture arrangement with Progress that expires Oct. 31 and, according to the deal’s circular, needs the approval of the boards of both companies to be extended.

Industry Minister Christian Paradis issued a statement minutes before midnight Friday that the bid had been rejected because the offer wasn’t in Canada’s national interests. Petronas has 30 days to appeal or provide additional concessions.